Data processing systems for the exchange of financial instruments and securities are old in the art. For example, the first subsystem to be employed in commercial practice was Instinet, which began operations in 1969. The Instinet system was a subject of U.S. Pat. No. 3,573,547 issued on Apr. 6, 1971. Instinet permits subscribers to engage in direct trading of securities among themselves on an anonymous basis. In effect, Instinet replaces the telephone and voice communications with communications conducted via the data processing system, with confirmations of trades being automatically transmitted to each party and to the appropriate clearing entity for settlement.
Other electronic data processing systems are exchange based order routing processors. For example, on the New York Stock Exchange (NYSE) is the Designated Order Turnaround System (or DOT) through which member firms transmit market and limit orders directly to the post where a security is traded, thereby dispensing with the messenger services of a floor broker. Limit orders are electronically filed while market orders are exposed to the (market) in front of the specialist's post, and executed either by a floor broker or the specialist. Automated data processing systems for small order execution exist in the dealer markets as well.
Regardless of the implementation, all such data processing systems for asset trading operate on an asset-by-asset basis. A trader (or a broker acting as his agent) may enter an order to acquire or dispose of a particular asset, or a portfolio of assets. In either case, individual transactions are consummated with respect to each of the assets individually. However, in many situations, a market participant does not necessarily derive value for a single asset, but for a basket of assets. In such a circumstance, the acquisition or disposition of assets on a asset-by-asset basis in order to obtain the basket of assets in the right proportion, and at the right price, may prove to be a complicated and time consuming task.
The market participant's problem is further exacerbated when the assets are within different asset classes. Here and throughout, the term asset is used in its broadest sense. An asset may be anything of value, and in a particular context, may be a commodity or other good, securities, or services, as well as money. To illustrate the problem, consider the supply chain problem as applied, for example, to cross docking operations. A typical instance of cross docking arises in the grocery trade.
In the grocery trade, goods are received from a multiplicity of producers and manufacturers for ultimate distribution in retail markets which are widely disbursed. A good flows to the grocer as a unitary item in bulk from the producer or manufacturer. These must then be broken into smaller unit sizes and distributed to the retail outlets, along with other goods from other manufacturers. Thus, the flow of goods from the producers must be warehoused and then redistributed. The facilities for warehousing and introduction of goods into a transportation stream for redistribution are the so-called cross docking facilities.
It is common practice to outsource the cross docking facilities and the transportation for redistribution. Thus, a grocer must acquire both the cross docking capacity and the transportation services to effect its objective, and these are acquired from different sources, that is, in a fragmented market. Moreover, the value of one of the two requirements is greatly diminished without the acquisition of the other.
The value to the grocer is in the aggregate, or basket, represented by the cross docking capacity and transportation service. In effect the price of one could be traded off against the other. If a ready means of cheap transportation is available, then the acquirer could afford to pay more for the cross docking capacity, or use a cross docking facility with wasted capacity, or vice versa. However, the fragmentation of the market for these services makes it difficult to implement such tradeoffs. An acquirer of the services would be better able to satisfy his requirements if he could obtain them as a bundle. Then he would only need to set the bundle price as his objective price. The bundle trading market would allocate price between the resources exchanged. Such a bundled trading mechanism also would squeeze out inefficiencies associated with the fragmented market for these resources.
A similar situation exists in the securities markets. A trader acquiring or disposing of a portfolio of equities may wish to hedge the acquisition or disposition by offsetting transactions in futures, options, or perhaps foreign currencies. The transactions implementing these acquisitions and dispositions take place in a fragmented market. The different assets are traded in different markets and the transactions may be displaced one from the other both in place and in time. Trading the assets individually in the fragmented market may lead to an overall loss with respect to the basket of assets due to market volatility. Thus, there is a need in the art for a method and apparatus for implementing a mechanism by which a market basket, or “bundle,” of assets may be exchanged among market participants.